PSB Beats FFO Estimates

PS Business Parks Inc. (PSB - Analyst Report), a real estate investment trust (REIT), reported fourth quarter 2011 FFO (fund from operations) of $32.8 million or $1.04 per share compared to $31.7 million or 99 cents per share in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Excluding the non-recurring items, recurring FFO for the reported quarter was $1.13 per share compared to $1.07 in the year-ago quarter. The recurring FFO for the quarter surpassed the Zacks Consensus Estimate by 8 cents.

For full year 2011, the company reported FFO of $149.8 million or $4.69 per share compared to $124.4 million or $3.88 per share in the previous year. The fiscal 2011 reported FFO exceeded the Zacks Consensus Estimate by 4 cents. Recurring FFO for the reported fiscal was $4.46 per share compared to $4.11 in 2010.

Rental revenues during the reported quarter surged 5.5% year-over-year to $74.7 million, driven by an increase in revenues of $5.4 million from non same-store properties, offset partially by a decrease in the rental rates in the same-store portfolio. Total revenues during the reported quarter beat the Zacks Consensus Estimate of $74 million.

For full year 2011, PS Business Parks reported a 7.7% year-over-year increase in rental revenues to $297.8 million, driven by an increase in revenues of $25.9 million from non same-store properties, offset partially by a decrease in the company’s rental rates in the same-store portfolio.

Average same-store occupancy during the quarter was 91.8% compared with 91.6% in the year-ago quarter. Annualized same-store realized rent per square foot during the quarter decreased 2.5% to $14.25 from $14.62 in the fourth quarter of 2010. Total net operating income during the quarter increased 2.5% to $49.3 million from $48.1 million in the year-earlier quarter.

During the reported quarter, PS Business Parks augmented its Northern California portfolio with the acquisition of 18 multi-tenant business parks comprising 2.9 million square feet of industrial space and 2.4 million square feet of flex space. The properties were purchased from RREEF America REIT II Corp. and its affiliate Northern California Industrial Portfolio Inc., for $520 million.

The acquired properties (82.2% leased to 216 tenants) were located in the Bay Area, primarily concentrated in Oakland, Hayward, Fremont, Milpitas, San Jose, Santa Clara and Sunnyvale. With the strategic purchase, PS Business Parks presently has 7.2 million square feet of multi-tenant industrial and flex space in 30 business parks in Northern California, accounting for about 26.3% of the total portfolio.

In order to fund the acquisition, the company assumed a $250 million secured loan scheduled to mature in December 2016, which bears a fixed interest rate of 5.45%. PS Business Parks also entered into a three-year unsecured term loan worth $250 million with Wells Fargo & Company (WFC - Analyst Report) that bears an interest rate of LIBOR plus 1.20%. The remainder of the purchase price was funded from retained cash and available credit facility. PS Business Parks recorded approximately $2.8 million as additional G&A expense in fourth quarter 2011 related to transaction costs for the acquisition.

At year-end 2011, PS Business Parks had cash and cash equivalents of $5.0 million and about $150 million available under the $250.0 million unsecured credit facility. Debt and preferred equity to market cap was 43.1% at quarter-end, with ratio of FFO to fixed charges and preferred distributions was 3.7x. The company maintained its dividend rate of 44 cents per share during the quarter. The distribution payout ratio during the quarter was 82.9% compared to 60.1% in the year-ago quarter.

We maintain our ‘Outperform’ recommendation on PS Business Parks, which presently has a Zacks #2 Rank that translates into a short-term 'Buy' rating.

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